While the deal has yet to be finalized, it represents a surprising new alliance between two warring sides in the operating system world. CEO Steve Ballmer made the announcement at a San Francisco news conference that Linux plays an "important role" in many companies, including Microsoft itself. "We see huge potential upside in these markets."

Novell's Suse Linux is currently the second largest commercial Linux distribution, with first place going to Red Hat. As a result of the announcement, shares in Novell jumped 16% to $6.79.

Financial terms of the agreement were not disclosed, but one of the high points is the expected construction of a joint research facility where the two companies can design and test their software together. Improvements in compatibility between Microsoft Office and OpenOffice are also expected.

Speculation about the long-term outcome of this union has begun already. Frank Artale, vice-president of XenSource, noted that Microsoft's embracing of Suse Linux as opposed to another particular variant could cause a "halo effect" in that the association between the two could make users choose it over another distribution. The open-source community also may have reservations about using a distribution that is "sleeping with the enemy."

As another part of the deal, Microsoft agreed not to file patent infringement charges against Suse users, and Novell has agreed not to sue users of Windows.

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